MMK in talks to buy Tikhov coal mine from IMH - sources
MOSCOW/KEMEROVO. June 6 (Interfax) - MMK-Coal, a division of MMK Group , is holding negotiations to acquire a major coal mine in the Kuznetsk Basin from merchant pig iron and coke producer Industrial Metallurgical Holding (IMH), an industry source told Interfax.
This refers to the Tikhov underground mine, which is next to a section of the Nikitinskoye hard coal deposit that is being developed by MMK-Coal.
IMH and MMK Group, the core asset of which is the Magnitogorsk Iron & Steel Work, declined to comment.
Another industry source confirmed to Interfax that negotiations are being held and said the deal has not been closed yet. "They haven't announced the deal officially yet. They are holding negotiations, the mine is still part of IMH," the source said.
The Federal Antimonopoly Service refrained from commenting on whether it received an application regarding a potential deal on the mine.
The Tikhov mine currently produces around half of IMH's coal. The group said in a Eurobond prospectus in 2022 that it planned to increase the mine's capacity to 2.5 million tonnes of coal per year by 2026, which would allow the holding to become fully self-sufficient in coal. But IMH's strategy in this segment has changed.
The group at the end of May disclosed plans to sell the asset in a circular to holders of $350 million of 2025 bonds: the mine is a guarantor of this bond issue and the consent of bond holders is needed to release it from the obligation. IMH expects to receive at least 22 billion rubles for the mine, which it will use for deleveraging purposes - according to IFRS reporting, the group has to repay 43 billion rubles of loans in 2023. The deal is scheduled to close in September, IMH said, without naming the other party to the talks.
IMH has assessed the medium-term prospects for the coal and metals markets and has decided to focus on the metallurgical segment: the development of the necessary raw material base and the implementation of innovative and green technologies is behind the decision to sell the coal asset, the holding said in the circular to bond holders. IMH management believes that the deal will reduce operating costs and optimize investment activity and the group's debt structure.
Bond holders have until June 16 to state their position. The consent of at least 75% of them is needed to remove the mine from the list of guarantors.
MMK mines 40% of its coal. The group's key coal assets are the Kostromovskaya or MMK-Coal and Chertinskaya-Koksovaya deep mines and a washing plant in Belovo, Kemerovo Region.
The Kostromovskaya and Tikhov mines develop the adjacent Nikitinsky and Nikitinsky-2 sections, and "it is logical if they work as a single unit, this is more profitable," one of Interfax's sources said. The source said MMK has been looking at the Nikitinsky section for a long time." Its coal seams can be developed without building any additional infrastructure.
MMK said in its annual report that its washing plants produced 3.5 million tonnes of coal concentrate in 2022, up 1.9% from 2021 due to "an increase in MMK's needs for coking coal grades from third-party suppliers." Coking coal production fell 11.6% to 4.4 million tonnes, due partly to challenging mining and geological conditions.
MMK's net debt was $393 million and total debt $97 million at end-2021. Net debt/EBITDA was negative 0.09x and net working capital was $1.4 billion. MMK said in the annual report that its EBITDA had fallen "significantly" in 2022 "due to unfavorable market conditions." The EBITDA margin also decreased, and free cash flow was "lower than in 2021" last year, reflecting lower volumes and prices for steel products, the report says.
The Tikhov Mine went into operation in 2017 and deep-mines coal at the Nikitinsky-2 section of the Nikitinskoye-2 deposit. It contains Zh and 2Zh fat grades of coal, which are scarce in Russia, and a low ash content of 33-40%. Design capacity is 1.8 million tonnes of coal per year. The mine produced 1.25 million tonnes in 2022 and the 2023 target is 1.16 million tonnes, according to the company's reporting. It is envisaged that the mine will be able to produce more than 2 million tonnes of coal per year from 2027. Its revenue rose 45% last year to 9.5 billion rubles, operating profit 80% to 4.7 billion rubles and net profit 2.4-fold to 3.5 billion rubles.
IMH includes PJSC Koks , one of the biggest producers of metallurgical coke in Russia, enterprises for production of coal - Butovskaya Mine, Uchastok Koksovy Open Pit, Berezovskaya Washing Plant, and Tikhov Mine, iron ore producer Kombinat KMAruda and pig iron producer Tulachermet . In addition, the holding includes JSC Polema, a leading international manufacturer of products made from chromium, molybdenum, tungsten, metal powders, and composite materials, and iron castings producer JSC Krontif-Center.